Wednesday, April 30, 2008

As I noted in the title of this blog my aim here is to explore the links between freedom (liberty) and human flourishing.

I decided when I started this blog about seven months ago that the best way to ensure that I actually used it to undertake this exploration of links between freedom and flourishing would be to make each item in the blog an attempt to answer a relevant question.

It seemed to me that the exploration could usefully be thought of as a sequence of questions. As each question was explored, that would raise further questions, which would, in turn, raise further questions, and so on.

However, the existence of a sequence of questions is not obvious when you look at the front page of the blog, even though I think I have stuck fairly well to my original intentions. As with any other blog, what you see on the front page of this blog is like what you would see opening a book at random. You might see some topics at the side, but trying to follow those is like looking at the index at the back of the book and then reading entries that look interesting.

Dipping into a blog in this way can be a useful thing to do to get an idea of what it is about. But some readers may prefer to read an introduction.

What I attempt to do below is to give readers the benefit of my thinking about the order in which questions should be considered.

Where to begin?Many people who come to this blog will view happiness as the ultimate goal of life. If that applies to you, you might like to begin by considering how human flourishing relates to happiness.

What does flourishing mean? HereHowever, you might have come here with the view that there is nothing more important than individual freedom. If so, you might ask:

Monday, April 28, 2008

I know that just about everyone who has read this far will think this post has to be about masochism, or schadenfreude. What is the definition of masochism? Masochism is the pleasure that some people feel when they pay their taxes. What is the definition of schadenfreude? Schadenfreude is the pleasure that some people feel when others have to pay more tax than themselves.

Actually, that is all I intend to write about masochism and schadenfreude in this post. The rest of the post is about the findings of some scientific research that suggests that paying tax can stimulate the same brain regions as are fired when basic needs such as food and pleasures are satisfied (B Harbaugh, U Mayr and D Burghart, ‘Neural responses to taxation and voluntary giving reveal motives for charitable donations’, Science, 2007).

In the experiment 19 women were given $100 and then their brains were scanned as they watched some of their money go to a food bank (a local charity) through mandatory taxation and as they made choices about whether to give more money voluntarily or to keep it for themselves. When the participants saw their money going to the food bank this fired off the same areas of their brains that respond to basic rewards like sweets, nutrients or positive social contact – indicating that they felt good, even when they had no choice about giving. The activation of these brain areas was even larger when the participants gave the money voluntarily.

One of the authors of the study, Ulrich Mayer, claims that the results show that people are to varying degrees pure altruists. Arguably, however, the results show that giving provides emotional benefits to the giver. When they give anonymously some people may give solely for the benefit of others, but most would do it for the warm inner glow.

I am not particularly surprised by the results of this study. People like to see others being helped when they fall on hard times because they know that they would appreciate help themselves in similar circumstances. I imagine that, if choosing behind a veil of ignorance about their own income, the vast majority would choose to live in a society in which those unable to support themselves were helped by others - and would be more than willing to pay an income-related insurance premium for this purpose as the price of admission.

At the same time, however, we often have good reasons to think of redistributive taxation as more akin to extortion than payment of an insurance premium. A substantial proportion of redistribution occurs because the recipients of transfers have the political muscle to have the coercive powers of the state used for their benefit. Paying tax could not be expected to make people happy under those circumstances.

It seems to me that the way this experiment has been structured tends to favour the result obtained.First, I wonder whether inclusion of men among participants would make any difference to the results. For example, men might be less sympathetic than women to the plight of needy people.Second, I wonder whether it would make any difference if participants were required to work for the initial allocation of funds. People might have less resistance to compulsory sharing of windfalls than money that they have worked to obtain.Finally, I wonder what difference it would make if people saw their money being used by welfare recipients to fund such things as purchase of alcohol or gambling. It seems to me that a person would have to be a masochist to feel happy about paying tax under such circumstances.

I’m sorry! I forgot I wasn’t going to mention masochism again in this post.

Three studies were reported. The first involved asking a sample of 632 Americans to rate their general happiness and to report their annual income as well as how much they spent each month on bills and expenses, gifts to themselves, gifts to others and charitable donations. A regression analysis of the results suggested that income level and spending money on others had a similar positive effect on happiness, but personal spending was unrelated to happiness.

This study does not reveal anything about the direction of causation. The results could just mean that happy people tend to be more generous. I know that when I am feeling grumpy I am not in a mood to be generous. The other two studies provide a better indication of the direction of causation.

The second study involved asking people their happiness prior to and after receiving a bonus from the company they worked for. The results suggest that those who spent more of the bonus on others experienced greater happiness after receiving it. Unfortunately there were only 16 people in the survey, so some caution is needed in interpreting the results.

The third study was an experiment in which 46 people were asked to rate their happiness one morning and then given an envelope containing either $5 or $20 to spend that day. Some were asked to spend the money on themselves and the others were asked to spend the money on a gift for someone else or a charitable donation. At the end of the day they were all asked to rate their happiness again. The participants who were instructed to spend money on others were significantly happier than those instructed to spend the money on themselves.

If we can assume these findings are reliable, what should we make of them? Elizabeth Dunn, the lead author, is reported as having said that it would be wrong to glean from this research that you should try to get a high-paying job so you can make tons of money and spend it on others so that you'll be happy (see here). Why not? Even if a person of moderate means gets the same boost in happiness by giving away a few dollars a week as a billionaire gets from giving in away the same proportion of her income, the billionaire can have the additional satisfaction of helping a far larger number of people. Will Wilkinson asks: “how long before someone tries to use this study to argue that taxes make us happy?” (See here.) I imagine it will not take long. It seems to me, however, that the findings might support the opposite conclusion (as Gil, a person leaving a comment on Will’s blog, has already suggested). To the extent that taxes substitute for voluntary giving they might reduce the happiness of donors since they no longer have any choice in the matter. If you were to give some cash to a needy person it is conceivable that this could make you feel happier. If the same person held a gun to your head and told you to hand over the same amount of cash then I think it would be reasonable to predict that this would make you feel very unhappy.

I ended my last post (here) wondering how I would feel after I had finished reading Daniel Gilbert’s book, “Stumbling on happiness”. In particular, I wondered how I would feel if the author managed to persuade me that I was wrong in believing that individual humans have the capacity to look forward in order to choose the best future for themselves.

I need not have been concerned. This is a lively and interesting book, but it seems to me that Gilbert has not succeeded in demonstrating that we are unable to shop around among the different fates that might befall us. Perhaps he mis-stated his intention in the first chapter. His book certainly demonstrates that we experience illusions of foresight – more illusions than I had imagined we experience. It concludes, however, with a recommendation about how we can make more accurate predictions about our emotional futures. The author suggests that we can do this by observing how happy other people are in different circumstances rather than by trying to imagine how happy we would be in those circumstances in the future.

Gilbert acknowledges that because everyone is unique the emotional experience of others is an imperfect guide to how we might feel. He suggests, however, that we tend to make greater errors when we reject the lessens that the emotional experience of others has to teach us and rely exclusively on our attempts to imagine how we might feel in those circumstances.

It seems to me that by the end of his book Daniel Gilbert is acknowledging that humans do have the capacity to look forward in order to choose a better future for themselves and can improve their use of this capacity. In effect, this view is consistent with, economist, Gary Becker’s view (“Accounting for Tastes”, 1996, p11) that the capacity that people have to anticipate future utilities can be improved by developing “imagination capital”.

Ironically, Daniel Gilbert implies that if individuals were more effective in pursuing their own happiness this could have adverse consequences. The example he gives is having children. There is a common belief that children bring happiness, even though people who are married without children report being happier, on average, than those with children living at home. Gilbert suggests that “the belief that children are a source of happiness becomes part of our cultural wisdom simply because the opposite belief unravels the fabric of any society that holds it” (p244). He notes that the opposite belief would actually be self-terminating because people acting upon it would fail to reproduce.

It seems to me that this apparent conflict between pursuit of happiness and human flourishing stems from either too narrow a definition of happiness or failure to recognise that people pursue some objectives that are not encompassed by a narrow definition of happiness. Gilbert wants to reserve ‘happiness’ to refer to “that class of subjective emotional experiences that are vaguely described as enjoyable or pleasurable” (p 41). This corresponds to what Daniel Nettle describes as Level 1 happiness (“Happiness”, 2005). He suggests that when people say they are happy with their lives they are reporting Level 2 happiness: “They mean that upon reflection on the balance sheet of pleasures and pains, they feel the balance to be reasonably positive over the long term” (p17). Level 3 happiness involves “making judgements about what the good life consists of and the extent to which one’s life fulfils it” (p23). Thus the belief that “children are a source of happiness” may be linked to individuals’ conscious perceptions of the “good life” rather than just “part of our cultural wisdom”.

Is Daniel Gilbert’s book relevant to anyone who wants to pursue the “good life’ rather than Gilbert’s narrower perception of happiness? Yes. It seems to me that anyone seeking to choose between alternative futures could benefit from greater knowledge of the illusions of foresight discussed in this book.

This question was raised in my mind by the first chapter of Daniel Gilbert’s book, “Stumbling on Happiness”(2007). The question that the author actually considers is: Why do humans make predictions about the future? He gives two answers:

First, people make predictions about the future because “our brains want to control the experiences we are about to have”. People “find it gratifying” to exercise control.

Second, “we are the apes that learned to look forward because doing so enables us to shop around among the many fates that might befall us and select the best one”.

The author managed to catch me by surprise by asserting that the first answer is right and the second answer is wrong. He then informed me that he intended to spend the rest of the book trying to convince me that the second answer is wrong.

This set me wondering whether there would be important implications for the relationship between freedom and human flourishing if we were not able to choose rationally between alternative futures.

Imagine a young person making a career choice. Perhaps she is weighing up whether to become a politician or courtesan. In thinking about which option would contribute most to her future happiness she would presumably consider such things as potential pecuniary benefits, the kind of people she would be working with, the respect she would have of herself, attitudes of family and friends and potential risks associated with the alternatives. Based on these considerations she might decide that there is not much to choose between these alternatives. (Just joking!)

Why would I object if this person’s career choice was taken out of her own hands and placed in the hands of a government-appointed expert who would assess her aptitude for a range of occupations and choose the one that would give her the best chance of having a happy life? I have four reasons:

My inner economist tells me that this person is probably in a better position to make such choices than any expert because she has better knowledge about herself and hence about how happy she would be likely to feel in different occupations.

She has a right to make these decisions herself. Even if she is thought likely to make the wrong choice, her right to choose should be respected.

Interference with her right to choose her occupation may have a net adverse effect on her happiness over a life-time, even if the expert is in a position to make a more-informed choice about her future happiness.

There is evidence that happiness is associated with the exercise of competence in the face of challenge. Competence comes from accepting responsibility for decisions and learning from mistakes.

I concluded that I would be surprised but not devastated if Gilbert managed to persuade me that I was wrong in believing that individual humans have the capacity to look forward in order to choose the best future for themselves. I suggested that my inner economist might feel a little bruised, but I would remain a strong advocate of liberty.

I suggested, however, that Daniel Gilbert would probably claim that my imaginings about how I might feel after I had finished reading his book were not likely to be reliable predictions of how I would actually feel. See my next post for the sequel.

Lao-tzu was a Chinese philosopher who lived in the early sixth century BC and served as a resident scholar at the royal court of the Shou. Taoism, the religion based on his teachings, spread over much of Asia.

Lao-tzu wrote:“If I keep from meddling with people, they take care of themselves,If I keep from commanding people, they behave themselves,If I keep from preaching at people, they improve themselves,If I keep from imposing on people, they become themselves.”

When I first read that last year I was surprised that such a liberal viewpoint had once been influential in China.

So I went looking for more of the writings of Lao-tzu and found the following:

If you want to be a great leader,you must learn to follow the Tao.Stop trying to control.Let go of fixed plans and concepts,and the world will govern itself.The more prohibitions you have,the less virtuous people will be.The more weapons you have,the less secure people will be.The more subsidies you have,the less self-reliant people will be.

Therefore the Master says:I let go of the law,and people become honest.I let go of economics,and people become prosperous.I let go of religion,and people become serene.I let go of all desire for the common good,and the good becomes common as grass (Toa Te Ching, 57 (here).

When I looked further I found that some high ranking Chinese officials have recently called for the wisdom of ancient Taoism to be adopted to help build a harmonious society in China (here).

It seems to me that western political leaders could also learn a great deal from Lao-tzu.

In his book, “The end of certainty”, published in 1994, Paul Kelly argued that the 1980s saw the collapse of an Australian political tradition that had been embraced nearly a century before. This tradition, which he termed the 'Australian settlement', was based on the white Australia policy, trade protectionism, the arbitration system (national wage regulation), government paternalism (extensive government intervention aimed to promote individual well-being) and the belief that Australian prosperity was underwritten by the British Empire.

Kelly suggests that the Australian settlement (also sometimes known as Fortress Australia) was bipartisan – an alliance between the conservative establishment and working class power (p 13).

It seems to me that the Australian settlement had begun to crumble by the late 1960s. By that time many people felt that racial discrimination in immigration was an embarrassment. By then the case for some reductions in protection was being seriously considered within government, even though few people were brave enough to advocate free trade. Faith in Empire had crumbled during the Second World War and had largely been replaced by the American alliance – which (as today) was coming under criticism as a result of poor leadership in Washington.

I think Kelly is correct, however, in pin-pointing the 1980s as the decade in which the greatest part of the Australian settlement collapsed, even though centralised wage fixation was still strong during that decade. Arguably, government paternalism is as strong as ever, even now.

Kelly ended his book by suggesting that the challenge for Australian leadership was “to create a synthesis between the free market rationalism needed for a stronger economy and the social democracy which inspired the original Australian Settlement ideals of justice and egalitarianism”(p 686).

More recently Paul Kelly has announced the arrival of a “new Australian settlement engineered by political leaders during the past generation and a half”. He suggests that “Australia's post-1983 progress is a direct function of national leadership. Hawke, Keating and Howard, despite their differences, are best understood in an historical continuum finding similar solutions to the same problems”. He notes that the policies of the major parties have converged. For example, economic policy has become more pro-market, foreign policy has converged on a strategic outlook of simultaneously deepening ties with East Asia and the US, and immigration policies have converged on acceptance of increased immigration accompanied by a deeper commitment to Australian citizenship (see here).

In a Financial Review article entitled ‘Merging into nothing’, a few weeks later (9 November) Mark Latham, former leader of the Australian Labor Party, took this argument about policy convergence somewhat further. He suggested that the policies that the major parties had put forward in the election campaign then being conducted were virtually indistinguishable. It seems to me that he was not suggesting that the situation could be otherwise – it was the result of an “economic revolution” that had “transformed the nature of politics”.

Latham argues that “the market-based reforms of the Hawke / Keating / Howard governments transformed Australia into an intensely materialistic society. For the first time, working class people were given easy access to finance and capital. They used these economic opportunities to climb the social ladder, leaving behind their working-class suburbs and values”.

I disagree with Latham on the question of whether society has become more materialistic. It seems to me that despite all the talk about the “fair go” ethos the Australian Settlement embodied a mean-spirited form of tribal materialism. The prevailing ethos was that in this country we look after our mates. The “fair go” ethos did not even extend as far the nation’s first inhabitants.

Latham does seem to be right, however, in suggesting that more people have adopted middle-class values over the last couple of decades. He states: “The chief middle-class demand on the political system is ... for more money. It wants governments to get out of the way: cutting taxes, cutting outlays to undeserving welfare recipients and freeing up more resources for the growth of private sector lifestyles”.

It seems to me that the policy convergence on middle class concerns, as identified by Mark Latham, provides the foundation for the new Australian settlement. Whereas the old Australian settlement left room for political battle over income distribution, this has now just about evaporated.

One of the few areas in which major policy divergence could open up within the framework of the new Australian settlement lies in the contradiction, noted by Latham, between middle class demands for lower taxes and for middle class welfare to be retained or increased. Hopefully, before too long, one of the major parties will begin to offer the electorate the choice of reducing middle class welfare in exchange for lower taxes.

Sunday, April 27, 2008

This is like asking: Which comes first, the chicken or the egg? Before I explain why I think this, I will first attempt to explain why I find myself in sympathy with both views.

Why does it make sense to view self-esteem as a by-product of worthwhile achievement? It seems to me that Adam Smith was correct in suggesting that when we examine our own conduct and pass judgement on it we are adopting the perceptual position of a spectator. If we view our conduct as praiseworthy this can be a source of “inward tranquillity and self-satisfaction” even if no-one actually praises us (“The Theory of Moral Sentiments”, 1759, III,i,6 and III,ii,1 (here). It is not particularly satisfying to be esteemed if we do not feel that we deserve to be favourably thought of.

Why does it make sense to view self-esteem as a prerequisite for worthwhile achievement? Some people grossly under-estimate their own ability. They are believe that they are destined to fail at everything they attempt to do. Such people need to attain a more balanced assessment of their own capability – greater self-esteem - before it is possible for them to achieve anything worthwhile.

So, how can these views be reconciled? It seems to me that the first view concerns achievement - or conduct, behaviour or performance - whereas the second view concerns capability or potential. Nathaniel Branden has no difficulty in combining both views in his definition:“Self-esteem is the disposition to experience oneself as being competent to cope with the basic challenges of life and of being worthy of happiness. It is confidence in the efficacy of our mind, in our ability to think. By extension, it is confidence in our ability to learn, make appropriate choices and decisions, and respond effectively to change” (see here).

Abraham Maslow saw satisfaction of the need for self esteem - feelings of adequacy, competence and confidence - as necessary for self-actualization. Michael Hall, a psychologist and personal development trainer, argues that both internal factors (meaning-making or conceptualisation) and external factors (performance) are required for self-actualization. He suggests that people who focus excessively on the conceptual side of things tend to become dreamers and to live in fluff land. Those who focus excessively on performance tend to lose sight of the big picture and become compulsives and workaholics. According to Hall, self-actualization emerges in an experience from creating a rich synthesis of meaning-making and performance – from both knowing and doing ( “Unleashed, A guide to your ultimate self-actualization”, here)

Just as eggs come from chickens, people need some self-esteem before they can achieve anything worthwhile. And just as chickens come from eggs, people need ongoing achievement to maintain self-esteem.

I ended my last post (Is push-pin as good as poetry?) wondering whether John Stuart Mill would have had a different view of the pleasures offered by sensual and aesthetic pursuits if he had viewed the matter in terms of ongoing choices about the allocation of his time, rather than as a single decision to be made for all time. I had in mind that he might have been able to decide, for example, that this evening he will play push-pin, but tomorrow evening he will go and visit Harriet Taylor and read some poetry by Samuel Taylor Coleridge. (I am assuming that Harriet would have preferred poetry to push-pin.)

Having now thought further about this, I don’t think J.S. would have changed his view if he had framed the issue in terms of a time allocation problem. I think he saw the choice between sensual and aesthetic pleasures as path dependent. In other words, J.S. thought that if he went too frequently down the path to the push-pin parlour (or wherever they played that game) rather than up the path that leads to Harriet’s place of poetry, he would eventually forget how to find Harriet’s place.

Mill saw intellectual tastes as being closely linked to high aspirations and noble feelings. In “Utilitarianism” he wrote:“Capacity for the nobler feelings is in most natures a very tender plant, easily killed, not only by hostile influences, but by mere want of sustenance and in the majority of young persons it speedily dies away if the occupations to which their position in life has devoted them, and the society into which it has thrown them, are not favourable to keeping that higher capacity in exercise” (here).

He went on to argue that people who do not exercise that higher capacity “addict themselves to inferior pleasures”. According to Mill, this means that they do not “deliberately prefer” these “inferior pleasures”.

As I wrote earlier I know very little about push-pin, but I am prepared to accept that it could be slightly addictive. Similarly, poetry could also be slightly addictive. It is difficult for me to accept, however, that anyone could become addicted to either push-pin or poetry to the extent that they would lose their capacity for rational choice. (Interestingly, but beside the point, the poet Coleridge - whom J.S. admired - claimed that his famous poem ‘Kubla Khan’ was inspired by a dream that was induced by use of opium, a highly addictive activity).

Would J.S. still have argued that those “addicted” to inferior pleasures do not deliberately prefer them had he had the opportunity to read what Gary Becker wrote much later about rational addiction? In brief, Becker argues that people choose to consume addictive products because they believe that the pleasure will outweigh the pain. They then choose to continue consuming these products because they believe that the pain of giving up will be greater than the pain of continuing with the habit.

I suspect J.S. would have a problem, as I do, in accepting that this kind of behaviour is rational. He might have been more impressed, however, by Thomas Schelling’s view that addiction is neither purely rational or irrational – it is about self-control. The dopamine system in our brains wants pleasure and wants it now. The cognitive system is better able to make longer term choices, but it can be slow to operate. That means that if we cultivate the habit of thinking strategically we can make better decisions. For example, if we are worried about becoming addicted to push-pin it is possible to make a commitment to read poetry at a particular time when we think we might otherwise make a spur of the moment decision to play push-pin. (Tim Harford writes beautifully about this kind of thing –although not explicitly about push-pin and poetry - in chapter two of his recent book, ‘The Logic of Life’).

Where this leaves me is with the thought that J.S. Mill was slightly off the mark in identifying the capacity to enjoy aesthetic pleasure as a tender plant that can speedily die away through want of sustenance. Rather, it is the capacity to make strategic decisions affecting our own well-being that is the tender plant that requires constant nourishment. It seems to me that humans could not flourish in an environment where aesthetic pleasures were the only pleasures they were permitted to seek. In order to flourish we need the freedom to make strategic decisions affecting our own well-being.

In order to answer this question it is necessary to know what push-pin is. From what I have been able to discover it is a game played with pins on the brim of a hat. Armed with that knowledge, however, I still don’t know enough about push-pin to judge whether it might sometimes give me more pleasure than reading poetry. The answer could also depend on the quality of the poetry and my mood at the time.

In The Rationale of Reward, published in 1830, Jeremy Bentham wrote :
“Prejudice apart, the game of push-pin is of equal value with the arts and sciences of music and poetry. If the game of push-pin furnish more pleasure, it is more valuable than either” (here).

Anyone who has studied a small amount of economics would know what Bentham was talking about. Whether pushpin is as good as poetry depends on an individual’s tastes.

John Stuart Mill noted that Bentham could not bear to hear anyone speak in his presence of good and bad taste: “He thought it an insolent piece of dogmatism in one person to praise or condemn another in a matter of taste”. With obvious relish, Mill contradicts this view of his god-father by asserting that people’s likings and dislikings are “full of the most important inferences as to every point of their character”. A person’s tastes “show him to be wise or a fool, cultivated or ignorant, gentle or rough, sensitive or callous ...” and so on (see here).

Picking up a similar theme in “Utilitarianism”, Mill writes:
“It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool or the pig are of a different opinion, it only because they only know their side of the question. The other party to the comparison knows both sides” (here).

When I first read that about 40 years ago, I wrote in the margin: “interpersonal comparisons of utility?” What I meant was: ‘How could Mill know what pleasure a satisfied pig or fool might feel?’

However, I now think Mill had a point. You have to experience pleasures before you can compare them. You have to read enough poetry to gain an understanding of the pleasure that other people obtain from reading poetry before you can judge whether this pleasure exceeds the pleasure you could obtain from alternative activities. The same is true of all cultural pursuits. The implications for education of children should be obvious.

I like to think of J.S. Mill as the great defender of individual liberty who asserted that:
“Such are the differences among human beings in their sources of pleasure ... that unless there is a corresponding diversity in their modes of life, they neither obtain their fair share of happiness, nor grow to the mental, moral and aesthetic stature of which their nature is capable”.

That was what Mill wrote in “On Liberty” (here). In writing Utilitarianism, however, he had other things on his mind. In that context he was not willing to consider the possibility that anyone who had knowledge of both bodily pleasures, which he describes as “the lower pleasures”, and mental pleasures, which he describes as “the higher pleasures”, could ever view the former as superior to the latter. The most he was prepared to concede was that people who appreciated the “intrinsic superiority” of the higher pleasures could occasionally be tempted to “postpone them to the lower”.

I wonder whether Mill would have reached a different conclusion if he had framed the question as being about the allocation of time to different activities. Within that context he might have been able to appreciate that it is not necessary to decide whether the pleasure to be gained from poetry always exceeds the pleasure that can be obtained from a good meal or playing sport. The issue is not about being tempted to pursue lower pleasures. It is about obtaining balance in one’s life. Postscript:Since writing this I have read what Henry Hazlitt had to say on the subject ("The Foundations of Morality", 1998). Hazlitt suggests that the discovery of marginal-utility economics supplies the solution: "Bentham's dictum becomes defensible if amended to read: Marginal satisfaction being equal, a unit of pushpin is as good as a unit of poetry". However, I doubt whether that explanation would have satisfied Mill. See my next post: Is push-pin addictive.Postscript 2: May 2010I have now written a related post on the potential contribution of happiness research to the question of whether push-pin is as good as poetry.

A recent article in “The Economist” about economics and the rule of law (‘Briefing’, March 15, 2008) begins with a confession by a prominent economist that he does not know what rule of law really means and ends with an enigmatic pronouncement to the effect that the more economists find out about the rule of law the more desirable it seems and the more problematic the concept seems to become. The article makes rule of law seem like an esoteric concept.

The main problem that economists have in explaining the economic importance of rule of law seems to stem from the observation that some countries, most notably China, have high rates of economic growth without strong adherence to rule of law. Could this be explained in terms that everyone can understand?

In my view the best place to start thinking about the relevance of rule of law to economic growth is by considering the difference between the incentives facing roving bandits and stationary bandits. It seems to me that Mancur Olson’s crime metaphor is apt because, like governments, bandits use muscle (coercive power) to pursue their objectives (“Power and Prosperity”, 2000). Olson pointed out that a Mafia family with a continuing monopoly on crime in a particular neighbourhood can obtain greater revenue by selling protection than by committing robberies. By preventing others from robbing their ‘clients’ and leaving ‘clients’ with some incentive to earn more wealth, the ‘family’ can obtain the benefits of more revenue through a larger tax base.

This helps us explain the problem of failed states. In such countries competing war-lords tend to behave like roving bandits and bandits behave like roving war-lords. Whenever anyone tries to do something productive, someone else takes the wealth that they have created. Once a war-lord gains control of his territory, however, he then has an incentive to act like a stationary bandit by protecting his subjects from marauders and leaving them with an incentive to earn more wealth.

An autocrat might be motivated to some extent by a desire to improve the well-being of his subjects, but even if his motives are entirely selfish it can still be in his interests to enter into a mutually beneficial partnership with them. In exchange for taxes he may begin to use his power to give them the incentive to attempt to accumulate wealth, for example by recognising property rights and enforcing contracts. Even when this happens in a limited way it can still have potential to unleash a lot of economic growth in countries where people have previously had little incentive to accumulate wealth.

It should be recognised, however, that some autocrats behave more like roving bandits than stationary bandits even though their control of their territory is secure. This may occur for a variety of reasons. Some autocrats may have problems in converting their followers from a culture of pillage to one of fostering the growth of a tax base. They may have problems in determining the point on the Laffer curve where tax revenue is maximized. Most importantly, in my view, it could be rational for an autocrat to impose a tax rate higher than the revenue maximizing rate in order to keep his subjects in a state of poverty if he is concerned that they would depose him, or limit his power, if they were permitted to accumulate wealth and the power that goes with it.

Even when autocratic rulers unleash a lot of economic growth by providing their subjects with incentives for wealth accumulation, the institutional environment still falls a long way short of the rule of law. There is always the possibility that even the most benevolent autocratic rule can revert to predatory rule and become a threat to people and their property. Rights cannot be secure when they can be restricted at the whim of autocratic rulers. This means that under autocratic rule economic growth is inherently fragile.

The rule of law is not a mystery. It is the principle that no-one is above the law. Where rule of law exists, governments can be dismissed if they fail to act lawfully.

How does the transition from autocratic government to rule of law occur? Unless autocratic governments decide to surrender powers voluntarily, the transition is only possible if people acquire sufficient power to bargain with their rulers. Autocratic rulers may allow their subjects to acquire such power as a result of accidents of history. For example, autocratic rulers sometimes need to ask people for support against foreigners who threaten to depose them and that support may come with strings attached. Sometimes autocratic rulers lose the support of their armed forces. Foreign powers can also help the transition to occur, as in England in 1688, but only if there is a domestic political movement strong enough and enlightened enough to require future governments to act lawfully.

My conclusion is that it is not difficult to understand how some countries have been able to experience high rates of economic growth without adherence to rule of law. The difficult question is how long such economic growth can be sustained.

Postscript:
Since writing this I have been trying to remember a paper that provides a clear expanation of the rule of law. This paper by Richard Epstein is the one I was trying to remember.

I liked the final sentence in Dani Roderik’s book: “Perhaps most difficult of all, economists will have to learn to be more humble!” (“One economics, many recipes”, 2007).

However, this is not a book by a disciple of F. A. Hayek warning about the “fatal conceit” involved in governments’ attempts at economic planning. Although Dani Roderik is not an old style economic planner he is, at best, equivocal about the benefits of economic freedom in facilitating economic growth.

Many of the criticisms that I would like to make of this book are contained within it. The author makes clear that he is fully aware of many of the objections that others will raise about his views. In brief, he argues that despite all the legitimate concerns that economists have about government failure the best way for governments to cook up economic growth is to develop their own home-grown recipes to provide necessary incentives – including by correcting alleged market failures.

The part of the book I found most interesting was the discussion of what the author describes as “information externalities”. The discussion begins by indicating that the author is considering the role of entrepreneurs in experimenting with new product lines – which involves, among other things, discovery of information about technologies, cost structures and profitability. The author refers to this as a process of self-discovery. He writes:“When we put ourselves in the shoes of an entrepreneur engaged in cost discovery, we immediately see the key problem: this is an activity that has great social value and yet is poorly remunerated. If the entrepreneur fails in his venture, he bears the full cost of his failure. If he is successful, he has to share the value of his discovery with other producers who can follow his example and flock into the new activity. In the limit, with free entry, entrepreneurship of this kind produces private costs and social gains” (p105).

In reading this my first thought was that even though the economics is dodgy, at least it makes a change from the argument that first-movers enjoy huge advantages and make unwarranted profits.

Then, on the next page I read:“The first-best policy response to the informational externalities that restrict self-discovery is to subsidize investments in new, nontraditional industries”.

I agree that it is quite plausible that in many low-income countries entrepreneurs can expect little profit in return for their efforts in discovering new opportunities. It seems more likely, however, that the reasons for this would have to do with predatory behaviour, of one kind or another, associated with the tax and regulatory environment than with market competition. If so, the best policy response would be to deal with the predatory behaviour rather than to label the problem as an information externality.

Dani Roderik argues that his first-best strategy (investment subsidies) is not feasible, so governments should get involved in winner-picking – in effect, taking on part of the entrepreneurial role. He acknowledges that some of the investments promoted by governments will turn out to be failures. He suggests, however, that if there were no failures this would mean that the program was not sufficiently aggressive. A good industrial policy will ensure that failures “are phased out”.

Unfortunately, that is where the discussion ends. In the course of the discussion readers are given some examples of entrepreneurial efforts of governments have apparently succeeded. The discussion would have been more persuasive if the author had included examples of governments that have had no difficulty in phasing out the failures that have arisen as a result of their winner-picking efforts. I suspect, however, that he would have had difficulty in finding such examples.

Until very recently I had the idea in the back of my mind that high rates of economic growth in China could be explained largely in terms of expansion of the private sector to meet export demand – with this rapidly growing sector absorbing a large amount of surplus labour from the agricultural sector. I knew that high economic growth in China was associated with substantial disparities in income between the industrial areas along the coast and the rural hinterland, but I imagined that the latter areas would also share in the benefits of growth as surplus labour was drawn out of the agricultural sector.

I must have connected the wrong dots. A recently published book by John Lee, Will China Fail?, points out that 75 percent of China’s growth comes from capital accumulation and over 70 percent of the capital goes to state owned enterprises (SOEs) – which produce less than 30 percent of output (Policy Monograph 77, Centre for Independent Studies, September 2007, p 60). Growth of employment in the non-state sector fell from 6.8 percent per annum in the 1980s to 3.4 percent in the 1990s (p 89). The capital allocation to SOEs apparently has more to do with preserving existing jobs than creating additional ones. So that means that high economic growth has not been doing much to absorb surplus labour from agriculture or to employ over 100 million people who are apparently floating around looking for jobs.

How could this happen? The story John Lee tells is about state banks that are flush with funds (high levels of private savings to fund health and education) which they direct to state owned enterprises, which have powerful friends in politics. This means that increasing amounts of money are being poured into production of goods that are not being consumed. The result for the banks is an increasing proportion of non-performing loans.

It is difficult to obtain independent confirmation that the situation with regard to non-performing loans is currently as bad a Lee claims. A relevant study by the IMF published in 2004 (see here) suggests that there had been some improvement - but the study may be out of date.

Can the Chinese government resolve these economic problems? I am more optimistic than John Lee, but I must admit I don’t have much basis for my optimism. From what I read in the papers, the present crop of Chinese leaders seem at least to acknowledge that they have problems and to be announcing policies to address them. They might manage to reform the system to a sufficient extent to enable economic growth and some degree of social harmony to be sustained.

What would it mean for us if China fails? There are obvious implications for Australia’s mineral exports. The people who have been saying that the mining boom would not last for ever were always going to be right one day. A weakening in mineral export prices in the next few years now seems to me to be a distinct possibility. It would represent a significant shock to the Australian economy, but not an economic disaster.

The more worrying implication of economic failure in China would be the possibility of a retreat from its peaceful rise policy and adoption of an increasingly belligerent stance in international relations.

Charles Murray has argued that self-actualization can be viewed as the exercise of competence in the face of challenge (“In pursuit of happiness and good government”, 1988). He based this view largely on the work of Edward Deci and Richard Ryan. (See here, here and here for some discussion and references.)

Evidence from narrative research presented by Dan McAdams also supports this view. McAdams has found that the presence of redemption themes in life stories to be correlated with measures of psychological well-being such as life satisfaction and self-esteem (“The redemptive self”, 2006, p 44).

Redemption themes are not just happy themes. One of the characteristics of redemption themes is that the narrator encounters many obstacles and suffers many setbacks but is eventually redeemed and develops toward actualization of an inner destiny. The presence of a redemptive theme person’s story predicted their psychological well-being much more strongly than did a measure of how positive or happy the story was. These research findings are also revelevant to my speculations about the things we regret most. See here.

It seems obvious that life stories should contain just about all the information that anyone would want to know about human flourishing. When you ask someone to tell you about their life you get a much more complete picture of how satisfied they are with what life has offered and what they have accomplished than you could ever get by asking them for a numerical rating of their life satisfaction. Actually, asking someone to give you a numerical rating of their satisfaction with life as a whole could even be a good way to stop someone from telling you about those things.

So why don’t researchers ask people about their life stories – the high points, the low points, the turning points etc – rather than the questions asked about happiness, life satisfaction etc in surveys? The reason why little use has been made of life stories in the past, at least in scientific research as opposed to literary works, must have to do with the difficulty of adding different life stories together (or averaging them in some way) to obtain an overall picture of some dimension of human flourishing.

The secret of success in making quantitative analytical use of life stories is to focus on identifying whether or not the stories display particular characteristics of interest to the researcher. For example, in their study of narratives relating to high points, low points and turning points Jack Bauer, Dan McAdams and April Sakaeda coded the paragraphs that participants wrote about each episode according to the presence or absence of integrative and intrinsic memories. Integrative memories were present if there was evidence in the account that the participant had learned from the experience or come to a deeper understanding of self or others as a result of it. Intrinsic memories were present if participants focussed on matters of intrinsic interest, e.g. meaningful relationships, rather than extrinsic interests, e.g. money and status. (See: ‘Interpreting the good life ...’, Journal of Personality and Social Psychology, 2005).

Participants in this study were also asked to complete more conventional survey questionnaires to provide measures of happiness, maturity (measuring such things as the degree to which individuals can hold impulses in check and respect others’ standards) and personality traits (neuroticism, extraversion, openness, conscientiousness and agreeableness). The results of study enabled the authors to reach the following conclusions:People who emphasised what they learned from their experiences tended to be more mature than others.People who emphasised the effects of experiences on personal growth and relationships tended to be happier than others.For the most part these results could not be explained by simply knowing the broad personality traits of individuals in the study.

It seems to me that narrative research may be able to play a role in studying the inter-relationships between the rules of the game of society (including both formal institutions and informal rules associated with cultures) and the extent to which people respond positively or negatively to challenging experiences.

There is a saying going around that no-one on their deathbed ever regrets not spending more time at the office.

It is a witty thing to say - but the people saying it are making a serious point. Does the point stand up to scrutiny? It seems reasonable to expect that some people would regret not working harder or longer to accumulate more wealth to leave to their children and grandchildren. I suppose there would also be a few who would be wishing that they had spent more of their wealth during their lifetime – they would be regretting that they could not take it with them.

I suspect that it is safer to assert that few people on their deathbed ever regret the time they have spent with their families - but that doesn’t sound so witty. It would also be very hard to confirm (or disprove). Imagine an elderly person lying on her deathbed with her family gathered around when someone conducting a survey comes in and starts asking her to nominate the things she most regrets in her life. How would she respond? Then think about the potential bias in the survey sample that would come from leaving out all the people who die unexpectedly, all those who die peacefully in their sleep and those who are not able to think clearly about anything when on their deathbeds.

Why focus on deathbed regrets? Despite Solon’s ancient view that no-one can tell whether they have had a happy life until they reach the very end, it seems to me that survey findings about regret are no less valid because researchers don’t wait until people are on their deathbeds before asking them about their regrets. As discussed in an earlier post there have been interesting research findings about regret. For example, in the long run we tend to regret the things we have not done more than the things we have done (see here).

When someone makes an assertion about deathbed regrets they are obviously just inviting us to conduct a thought experiment.

Some of these deathbed thought experiments are worthwhile. For example, when you are on your deathbed will you regret that you didn’t live a more healthy lifestyle? That seems to me to be worth thinking about – even though the answer could depend on the reason why I am on my deathbed. What would I be thinking if I was on my deathbed because I had been bitten by a snake while out getting my daily exercise?

However, there is one assertion about deathbed regrets made to me by a wise person the other day that seems to be to be just about beyond dispute: “No-one on their deathbed ever regrets not spending more time ironing clothes”.

Like most other people, I usually think of regret as arising from short-sighted behaviour or lack of sufficient resolve to resist temptations that I had decided to resist. However, some recent psychological research on self-control regrets, by Ran Kivetz and Anat Keinan, reminds me that people can also experience regrets about missing out on the pleasures of life (see here). The research actually suggests that while the passage of time attenuates feelings of regret and guilt about indulgences, it accentuates feelings about missing out on pleasures.

What should we make of these results? Before rushing to the shops to give your credit card a workout it is probably worth considering research results about the effects of excessive debt on personal well-being. This research shows, not surprisingly, that people who have difficulty in repaying debt tend to have lower subjective well-being than those who do not have such problems. (See, for example, Australian Centre on Quality of Life, Survey 11, Report 11, August 2004). I am not aware of surveys that have asked people who have difficulty in repaying debt whether they regret the purchases that led to this problem, but it seems to me to be likely that they would feel ongoing regret.

Gregory Burns suggests that people want more money because of “the accrual of possibilities” that money provides ("Satisfaction", 2005, p 39). The act of buying something closes off any number of other possibilities. This makes a lot of sense to me.

However, Burns asserts that the idea that people value having options is contrary to what most economists think. I disagree with him about that. His comments bring to mind the options approach to capital investment developed by Avidash Dixit and Robert Pindyck in the early 1990’s as an alternative to exclusive reliance on estimating the present net value of an investment. (I would be surprised if this approach is not now widely accepted as applicable to the theory of consumer behaviour as well). There are two underlying ideas. First investments are often irreversible – once the investment has been made funds cannot be recovered if market conditions turn out to be worse than anticipated. Second, investments can often be delayed - they are rarely now-or-never propositions. As a result, it often pays for investors to delay investment even when estimated net present values are positive. There are often benefits in keeping options open and making decisions that increase flexibility (e.g. through more R&D spending) rather than committing resources to irreversible uses. (For a non-technical discussion of the theory, see the Harvard Business Review article, here.)

The idea that buying things closes off opportunities helps to explain why some of us sometimes find moths in our wallets. The idea of investing in R&D (or was that R&R) is also relevant to personal decision-making. Greg Burns’ research suggests that dopamine is released into the striatum whenever a stimulus in the environment – good or bad – causes an animal to change what it is doing (p 43). The theme of Burns’ book is the human desire for novelty. He suggests that to get a satisfying feeling you need to get some cortisol into the striatum (as well as dopamine) and in order to get this you need a little discomfort. In other words, you need a challenge (p 147).

Now, I am about to speculate far beyond my expertise in order to relate this idea about the benefits of challenge back to the point at which I began – the research finding about the accentuation over time of the regrets we have about pleasures of life that we have foregone. My suggestion is that the foregone pleasures we regret most are those that we might have felt if we had not decided to avoid some of the more challenging experiences that were available to us .

Postscript: Since writing this in September 2007 I have learned that research findings suggest that my speculations may not be far off the mark. In his book, “Stumbling on Happiness”, Dan Gilbert sums up relevant research findings as follows: “Indeed, the long run, people of every age and in every walk of life seem to regret not having done things much more that they regret things they did, which is why the most popular regrets include not going to college, not grasping profitable business opportunities, and not spending enough time with family and friends” (p 197). Spending more time with family and friends may not be challenging but the other examples mentioned certainly would involve challenges.

Saturday, April 26, 2008

Social democrats seek to use the powers of government to modify the outcomes of the market system in order to achieve widely-shared objectives. They often talk in terms of trade-offs between efficiency and equity. They believe that in the name of fairness it is sometimes appropriate for government to use coercive power to help some people (e.g. the deserving poor) at the expense of others (e.g. high-income taxpayers).

Classical liberals tend to be skeptical of such compromises because the classical liberal visions of freedom and fairness are the same - a world in which no-one exerts coercive power at the expense of others.

It does not necessarily follow, however, that classical liberals have no sympathy with the outcomes that social democrats seek to achieve. Even though classical liberals do not have collective views about the desirability of different societal outcomes I think that many who like to wear this label would consider that most of the outcomes that social democrats seek to achieve as having merit. For example, like most other people, many classical liberals would consider it desirable for everyone to have access to incomes above minimal levels and for everyone to have access to education and health services that are above minimal standards.

Such views can be the result of enlightened self-interest – e.g. choices of distributive principles behind a veil of ignorance - rather than the result of altruism. As James Buchanan has pointed out, the Golden Rule clearly implies the ethics of reciprocity (a relationship among natural equals) rather than the ethics of benevolence - a relationship that implies that givers and receivers have different status. (See: “Why I, too, am not a conservative”, 2005, p 49.)

In conceptual terms, the difference between classical liberals and social democrats lies in the willingness of the latter to use the coercive powers of the state to achieve outcomes that they consider to be desirable (i.e. the things they label as social objectives). In practice, however, even such luminaries among classical liberals as Adam Smith, Milton Friedman and F. A. Hayek saw some circumstances in which use of the coercive power of the state was warranted to achieve better social outcomes (such as in provision of education and alleviation of poverty).

How can a person who claims to be a classical liberal rationalize the use of coercive power for such purposes? Different people do it in different ways and sometimes the same person does it in different ways at different times. It seems to me (at the moment at least) that if we can assume that a very high proportion of the population support provision of a social safety net then it is reasonable to choose the method of providing it that minimises costs. I imagine that the transactions costs associated with use of the tax system for this purpose would be much lower than for voluntary contributions.

I acknowledge that funding of a social safety net via taxation involves unfair treatment to those who would not choose to have such a social safety - even behind a veil of ignorance - but I don’t know how it would be possible to distinguish such conscientious objectors from potential free-riders who would like to have a social safety net without helping to pay for it. It seems to me that the welfare costs of taxing conscientious objectors for this purpose may not be large they retain the right of exit (i.e. the right to move their capital and place of residence to a lower tax jurisdiction).

In addition to support for a social safety net classical liberals and social democrats may potentially also have other objectives in common. For example:

Supporting use of more efficient methods to pursue government objectives. It is important to avoid creating unnecessary welfare dependency. It is important to avoid creating unnecessary disincentives to work effort, saving, investment etc. It is just as important for delivery systems for health, education services etc to be exposed to market disciplines as for other goods.

Resisting attempts by narrow interest groups to corrupt the political system. For example, all government programs should be subject periodical public reviews to consider whether stated objectives are being met efficiently and equitably. For more about the role of such transparency requirements, see here.

There is strong evidence that moral beliefs come from a small set of intuitions that evolution has prepared the human brain to develop. Morality, like sexuality and language, can be seen as emerging from the child in response to guidance from family and culture, rather than placed into the child as a result of these external influences. People have a preparedness to acquire certain kinds of moral knowledge and a resistance to moral teaching that is not consistent with these intuitions. The evidence has been presented in an article by Jonathan Haidt and Fredrik Bjorklund in their paper entitled, ‘Social intuitionists answer six questions about moral psychology’ (here) and has been recently summarised by Steven Pinker in a New York Times article (here).

On the basis of examinations of moral virtues and concerns that are common in the world’s cultures, Haidt and his colleagues suggest that five sets of intuitions should be seen as the foundations of ethics: dislike of pain and suffering in others; fairness (reciprocating favours, rewarding benefactors and punishing cheaters); respect for status hierarchies; concerns about purity (related to the emotion of disgust) and concerns about the boundaries between in-group and out-group.

There is, however, a great deal of scope for moral virtues and concerns to be pursued to advance the interests of some at the expense of others. Some people believe that they are acting morally when they seek to use the coercive powers of the state to reciprocate favours and to advance the interests of their families and communities at the expense of others citizens. Some people are so concerned about the pain and suffering among some groups that they seek to use the coercive powers of the state to redistribute the ownership of property and or modify contractual obligations. Some people are so disgusted with the behaviour of fellow citizens, including the clothes they wear or don’t wear, that they attempt to use the coercive powers of the state to prevent the behaviour that offends them, even though this behaviour does not interfere with their own rights.

What is it that holds modern societies together in the face of the ongoing pursuit of moral objectives that were shaped by evolution to protect self, kin and clan? When societies do hold together there seems to be a great deal of respect for decision-making processes that require people to state their case in a way that treats others as moral equals. Steven Pinker suggests that the core of this idea – the interchangeability of perspectives – keeps re-appearing in histories best-thought-through moral philosophies, including the golden rule, Spinoza’s viewpoint of eternity, social contract theories, Kant’s categorical imperative and Rawls’s veil of ignorance.

However this does not explain why in some societies many people have high regard for conventions that treat others as moral equals, while in others such people are in a small minority? Such rules of conduct seem to have gained a foothold in various parts of the world through accidents of history, but it is no accident that when they do gain a foothold people tend to flourish. F. A. Hayek made the point that the rules of conduct that make society a positive sum game have evolved through the successive relaxation of prohibitions. For example, bartering with outsiders, recognition of private property, enforcement of contractual obligations, competition among fellow craftsmen, variation of customary prices and the charging of interest on loans, were all initially infringements of customary rules ( Law, Legislation and Liberty, 1982, V 3, p 161).

I think Hayek was correct when he argued that “one of the most important tasks of our intelligence is to discover the significance of rules we never deliberately made, and the obedience to which builds more complex orders than we can understand” (p 163).

The most obvious implication of climate change has to do with adaptation. There is nothing new about adapting to climate change. Our ancestors managed to survive ice ages and periods of global warming, and to flourish by making changes in the way they went about their lives. No doubt our descendents will face similar challenges.

How can we best adapt? It seems to me that collectivist adjustment strategies that involve putting all our eggs in baskets designed by government agencies would be highly risky. The overall outcome is likely to be much better if individuals have maximum freedom to adjust as they see fit.

Does it make any difference if the challenge of climate change that our descendents face is attributable to human activity – namely, global warming due to greenhouse gas emissions? It seems to me that there are two ways in which it may make a difference. The first concerns personal ethics and the second concerns public policy.

There are not many individuals who would feel happy about pursuing a lifestyle that is likely to be seriously detrimental to the interests of their children and grandchildren. So, why aren’t we all making efforts to reduce our greenhouse gas emissions or to take action to offset them?

An excuse that some of us have is uncertainty about the science of global warming. In November 2007 I wrote: “ I now accept that the probability of net adverse consequences following from growing greenhouse gas emissions is somewhat higher than zero. I may be wrong.” Five months later, I think I might have been wrong. In a few months time I could change my mind again. I am easily swayed by the latest research findings.

What attitude should a climate change waverer, like myself, have toward environmental puritans who not only accept that there is an emerging problem of climate change caused by human action but also take action to minimize their own contribution to the problem? Some of my sceptical friends make no secret of the fact that they think these people are being foolish because their individual actions have an insignificant effect on the global problem that they perceive to exist. I think my sceptical friends should mind their own consciences and leave the environmental puritans alone – provided, of course, that environmental puritans are prepared to reciprocate.

Before ridiculing those who seek to minimize their own contribution to greenhouse gas emissions we should consider whether the fact that an individual’s actions have an insignificant effect on outcomes is seen to absolve her/him from responsibility for personal actions in other areas of conduct. It isn’t. For example, we do not view pilfering as being ethically OK for individuals who work in large firms, even though the amounts each individual steals may represent an insignificant proportion of the total costs of the firm.

So, let us have some respect for the environmental puritans who act conscientiously. In my view we should reserve our ridicule for the hypocrites who seek to impose restraint on others – through use of the coercive power of the government - without first exercising restraint themselves.

When government action is proposed this is not just a matter of saying: “Let us all agree to adopt a lifestyle that involves less emission of greenhouse gases so that our consciences can be clear”. It actually involves saying: “Let us make a collective decision that will induce people to emit less greenhouse gases whether they want to or not”. When governments make that decision they are disadvantaging some people who do not support the objective they are pursuing. Furthermore, the objective they are pursuing of reducing global greenhouse gas emissions cannot be achieved by the Australian government acting alone.

No amount of reduction in emissions by Australia can be anything more than a drop in the bucket relative to the global greenhouse gas emissions. If our government gets ahead of the rest of the world on this issue, citizens of this country risk the worst of all outcomes – bearing the cost of involuntary emission reductions without benefiting from any amelioration of any adverse effects on our climate.

It seems to me that until the world develops something approaching a global consensus in favour of reducing greenhouse gas emissions the Australian government would be wise to view this issue as a matter for individual conscience. However, I doubt whether this point of view will find much favour with our prime minister, Kevin Rudd. It seems more likely that he will prefer to follow the inner voice urging him to lead the world in reducing greenhouse gas emissions. After all, he has probably been in office long enough by now to believe that this inner voice is the collective conscience of all Australians.

Postscript: 28 April, 2008.
Two years on it is now apparent that I owe Kevin Rudd an apology. The rhetoric that led me to fear that he wanted Australia to lead the world in reducing greenhouse gas emissions turned out to be just political spin that led nowhere. It seems that Rudd's inner voice has told him that Australian voters would not like pointless increases in electicity prices that could be sheeted home to his policies. The government has suspended its proposals to reduce greenhouse gases for a couple of years. I don't imagine the proposals will re-surface until there is a strong lead from the U.S. that might actually result in a significant reduction in global emissions.
I promise that I will be much more careful in future before assuming that Kevin Rudd's rhetoric is anything more than political spin.

Friday, April 25, 2008

I ended my last post by suggesting that procedures that promote transparency can be an important constraint on the expansion of government if voters understand their importance and expect governments to comply with them (see here).

The expansion of government is often discussed as though it is perfectly obvious to everyone who are the net gainers from redistributions and who are the net losers. In fact, however, when we look at government programs we find that the redistributions they involve are often far from transparent. Non-transparent redistributions are often favoured in order to hide redistributions that are difficult to justify in terms of widely accepted ethical standards. It seems to me that procedures that promote transparency can therefore be an important constraint on the expansion of government.

What I had in mind were things like: legislative requirements for governments to specify monetary and fiscal policy objectives publicly and make public any departures from those objectives; requirements for publication of formal coalition agreements to make governments less vulnerable to attempts by minor parties to extract additional concessions at times of their own choosing; and requirements for governments to refer matters to independent public review before introducing measures (such as tariff changes) that assist some groups at the expense of others.

Such procedures certainly cannot be relied upon to restrain government from doing things that are popular with a majority of voters, or things that governments feel that they must do to preserve their tenure of power.

However, it seems to me that democratic governments can be deterred from over-turning inconvenient transparency procedures if they believe that such actions would contravene the concerns of voters about procedural fairness.

It is obvious that the concerns of voters about procedural fairness must encompass some transparency requirements if you consider how voters would react to a proposal for future government budgets to be secret. It would be reasonable to expect widespread opposition to such a proposal, including among government supporters, because of concerns that the removal of the limited transparency that publication of budgets provides would enable members of the government to enrich themselves at public expense without anyone knowing.

How far can transparency requirements protect against the expansion of government? The concerns of voters about procedural fairness clearly do not provide much protection against redistributions that are widely perceived to be equitable. I agree with Gerald Gauss that “for many citizens, their understanding of moral norms related to fairness endorses government-made rules over-riding the conventional rules of property” (here). Nevertheless, many government programs involve redistributions that seem to me to be inconsistent with widely accepted moral norms. An example of the kind of thing I have in mind is the way the provision of universal services by government without charge to users (e.g. public education and health services) discriminates against people (including low-income people) who elect not to use these services. I think there would be less support for such redistributions if they were made more transparent through procedural requirements e.g. for periodical independent reviews to consider whether stated objectives are being met efficiently and equitably. The important point is that voters’ concerns for procedural fairness can reinforce transparency procedures that can help to raise concerns about fairness that, in turn, can help to restrain the expansion of government.

Anthony de Jasay has recently written an essay for Cato Unbound entitled ‘Government, bound or unbound?’ (see here). This essay is a sequel to a widely-quoted article he wrote twenty years ago entitled ‘Is limited government possible?’.

The essay discusses the important question of whether democracy (or, more precisely, representative government with majority rule) is compatible with the classical liberal ideal of a government that acts as a guarantor of liberty, using coercion only to enforce rules of just conduct.

In the first part the essay the author argues that constitutions cannot be sufficiently strong to restrain governments from doing what they are anxious to do or must do to preserve their tenure of power. The basic problem is that, notwithstanding the so-called separation of powers, the enforcement of constitutional rules that provide that government shall not do certain things lies ultimately in the hands of government. Judges are appointed by governments. I agree with this reasoning.

I also agree with most of the second part of the essay, in which the author discusses circumstances and events that may place limits on collective choice. He suggests that several factors may place contingent limits on government.

The need for political candidates to obtain donations from higher income donors in order to get elected. This constraint is obviously weakened where campaign funding is subsidized by government. Even without such subsidies, I doubt whether this is an important constraint in countries with strong union movements.

The desire of the winning coalition to remain in power limits the extent to which marginal supporters can be taxed and its desire to maximize long run tax yield prevents it from imposing high rates that would chase away “the goose that lays the golden eggs” (i.e. avoiding a brain drain and flight of capital).

When government expands beyond some point an increasing proportion of voters may perceive that continuation in this direction will result in a bleak future. This may result in the election of a reform government with a mandate to pursue market-friendly policies.

Finally, human motivation is influenced by factors other than identifiable interest. The author suggests: “Perhaps the purest and strongest limit on government is the standard, non-interest motive arising from superstition or taboo”. He gives the example of the balance budget as a standard that was followed reflexively for about a century and a half prior to Keynes’s General Theory.

I have two objections to the idea that we can rely on superstition or taboo to limit government. First, it is difficult to see how a taboo can be maintained in any area of public policy unless political leaders can explain why it exists and their explanations have fairly widespread support among relevant professionals. Second, as James Buchanan has suggested, the ethical constraints required to protect liberty are closely related to rules of reciprocity in interpersonal dealings (“Why I, too, am not a conservative”, 2005, pp 81-2). The rules of reciprocal respect extend beyond markets to include the political sector when people consider themselves to be engaged in politics to obtain publicly provided goods and services in exchange for tax payments (rather than to obtain distributional gains at the expense of others). The benefits of adherence to rules of reciprocal respect are obviously not beyond human understanding and adherence to such rules is likely to be enhanced by more widespread understanding of the purposes they serve.

The final comment I want to make about this excellent essay is that I think the author’s list of constraints on expansion of government omits one that has potential to be important. I think that transparency rules can be an important constraint on the expansion of government if voters understand their importance and expect governments to comply with them. I will write more about this in my next post

Human flourishing is inherently a self-directed process. It follows that in order for individuals to be able to flourish to the maximum extent possible, without infringing on the flourishing of others, we need a political/ legal order that will not favour some varieties of human flourishing above others. If this point seem obvious to you, please read on. Otherwise, see here.

The first category of arguments to restrict freedom involve fundamental opposition to the ethics of “live and let live”. According to this view everyone should be required by the government to live according to a particular set of values and standards. It seems to me that in countries with democratic forms of government few people are prepared to take this position openly. A Google search using the phrase “live and let live” did not reveal any internet sites which were presenting arguments openly opposed to individual liberty. The most popular arguments against liberty are more subtle.

The second category of arguments to restrict freedom are attempts to re-define rights in ways that reduce freedom. Nearly everyone agrees that the law should protect people against force and fraud, and that some additional protections are required for children and people who are not mentally competent. However, arguments are frequently put forward to give additional protection to the unborn as well as to animals, potential drug addicts, potential gambling addicts, potential credit addicts etc. Some of these arguments may have sufficient merit to attract near unanimous support, while others involve attempts by particular groups to impose their values on others.

The third category of arguments to restrict freedom are based on the view that people will flourish to a greater extent if the government provides them with paternal guidance. Thus we have arguments for compulsory superannuation, compulsory accident and health insurance etc. Such measures may prevent some misery and reduce the extent to which people with self-control problems become a burden on others. It seems to me, however, that human flourishing is to a large extent about the exercise of competence in the face of challenge (for further explanation click here). When governments take more of the trouble (i.e. challenges) out of living, we shouldn’t be too surprised if some people find other ways to get themselves into trouble (e.g. via gambling).

The fourth category of arguments to restrict freedom are based on the view that it is OK to hinder the efforts of some people to flourish in the way they wish to if this will bring the greatest happiness to the greatest number of people (or perhaps just to improve the well-being of a small minority whom the majority consider to be worthy of government assistance). It seems to me that this is the dubious ethical reasoning that underlies the use of progressive income taxes to fund transfer payments and provision of public services. Nevertheless, not many people would be prepared to advocate immediate abolition of government welfare expenditure on the ground that it is not strictly consistent with the principles of “live and let live”. (See here.) This also seems to me to be the dubious ethical reasoning that underlies the economic argument that governments can increase GDP by subsidizing activities such as research, innovation and training, as well as arguments for governments to promote greater competition.

I think the main point which emerges from this attempt to list categories of arguments is that even though a large proportion of the population may support the principle of “live and let live” as an abstract concept, large numbers of people support policies that are inconsistent with this principle. This could be because they are unaware of the inconsistency, but in my view it is more often likely to be because they have no problem in making exceptions to general principles when they believe that there are powerful pragmatic reasons to do so.

When asked this question many people describe what they think an ideal world would look like and then point out how this ideal differs from the world we live in.

However, the visions we have of ideal worlds are not always possible worlds. A possible world has to be a world that is subject to the constraints of the laws of physics and biology, and one that is achievable by fallible humans. Charles Murray has suggested that if we were living in the best of all possible worlds we would be unaware of it (“In pursuit of happiness and good government”, 1988, p 242). He argues that only an omniscient bystander would know when we had reached the point when further attempts to reduce the bad things in the world would be futile because it would only increase the net amount of bad things. For example, just about everyone would agree that child abuse is a bad thing that should be reduced as far as possible, but in order to eliminate child abuse completely governments could end up doing more harm than good - for example, by separating children from non-abusive parents. We have to accept, reluctantly, that in the best possible world some parents would still abuse their children.

It seems to me that we would have a better chance of knowing whether we were living in the best of all possible worlds if we were living in a framework for utopias - to use an expression used by Robert Nozick (“ Anarchy, state and utopia”, 1974, chapter 10). Nozick argues that, because people are different, no one vision of utopia could command universal assent. Utopia should be thought of as a framework for utopias – consisting of different and divergent communities under which people would lead different kinds of lives under different institutions. Even if it is clear to an omniscient bystander that one particular type of community is superior to all others, the limits of human knowledge mean that we can only be sure that one form of community is superior to others by observing which forms of community flourish in a competitive environment. The test is whether people decide to join particular communities or leave them, or whether members modify the rules of their community to make them more like other communities.

To cut a long story short, it seems to me that we will know that we live in the best of all possible worlds when people are free to choose the kind of community they live in. We are a long way away from the best of all possible worlds when we have a central government which seeks to impose uniform national standards for all kinds of regulation.

In my view, if Australia is to move toward the best of all possible worlds it will need to correct the fiscal imbalance between federal and state governments and re-embrace the kind of federalism embodied in the Australian constitution which defines and limits the powers of the federal government.

Thursday, April 24, 2008

Isn’t this a great thought:“If we value such collective goods as scientific research, space travel, public art, and fine architecture, then we should tax to fund them, whatever the economic cost. The consequent reduction of our material consumption will have little psychic cost”.

I am just joking, but I don’t think Gregory Clark was joking when he left readers with this thought at the end of his book, “A Farewell to Alms” (p 377).

In some respects I think Clark’s book is an excellent piece of work. It is highly readable and the main ideas in it – about the possible influence of differential rates of population growth of rich and poor on the spread of bourgeois cultural values in England prior to the industrial revolution – seem to be based on extensive research.

How does the author manage to end his book by claiming that taxation is costless when used to fund collective projects? He sees this as an implication of the observation that average happiness levels in high income countries do not rise much with increases in per capita incomes. He seems to think that this means that governments can tax away future increases in average income levels without making people any less happy.

I am not sure about anyone else, but the mere thought of a government attempting to do this makes me feel grumpy. At present I feel reasonably satisfied with life as a whole, not least because I live in a country where there are reasonable prospects that average living standards will continue to improve. I will become a very grumpy old man, however, if the government takes Gregory Clark seriously and decides that my children and their children should forego improvements in their living standards in order to fund more scientific research, space travel, public art and fine architecture. I suspect that a lot of other people will also become grumpy if this happens.

Don’t get me wrong. I don’t have anything against any of the projects that Gregory Clark wants to fund. If he uses the proceeds of his book sales to fund such things, I think we should all be grateful to him. I might be prepared to buy a lottery ticket to help fund some of these things myself, but when I want to give any money to charity I prefer to give it to an organisation like Opportunity International. This organisation lends funds to needy people who are prepared to help themselves build better lives.

Emancipation

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Welcome to Freedom and Flourishing. While you are here, why not take a look around and leave some comments.

There is a list of my most popular posts below. I am pleased that a post about characteristics of a good society, that I wrote in 2009, is still one of the most popular. That post captures some of the ideas about freedom and individual human flourishing that I think are most important.